Abstract

http://ssrn.com/abstract=1519252
 
 

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Investor Reactions to CEOs’ Inside Debt Incentives


Chenyang (Jason) Wei


Federal Reserve Banks - Federal Reserve Bank of Philadelphia

David Yermack


New York University (NYU) - Stern School of Business

February 13, 2011

NYU Working Paper No. FIN-09-020

Abstract:     
Pensions and deferred compensation represent substantial components of CEO incentives. We study stockholder and bondholder reactions to companies’ initial reports of CEOs’ inside debt positions following a 2007 SEC disclosure reform. We find that bond prices rise, equity prices fall, and the volatility of both securities drops for firms whose CEOs have sizeable defined benefit pensions or deferred compensation. Similar changes occur for credit default swap spreads and exchange traded options. The results indicate a reduction in firm risk, a transfer of value from equity toward debt, and an overall destruction of enterprise value when CEOs’ inside debt holdings are large.

Number of Pages in PDF File: 51

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Date posted: December 8, 2009 ; Last revised: February 15, 2011

Suggested Citation

Wei, Chenyang (Jason) and Yermack, David, Investor Reactions to CEOs’ Inside Debt Incentives (February 13, 2011). NYU Working Paper No. FIN-09-020. Available at SSRN: http://ssrn.com/abstract=1519252

Contact Information

Chenyang Wei
Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )
Ten Independence Mall
Philadelphia, PA 19106-1574
United States
David Yermack (Contact Author)
New York University (NYU) - Stern School of Business ( email )
44 West 4th Street
Suite 9-160
New York, NY 10012-1126
United States
212-998-0357 (Phone)
212-995-4220 (Fax)
HOME PAGE: http://www.stern.nyu.edu/~dyermack
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